DBRS Morningstar Finalizes Provisional Rating of A (low), Stable Trend on Great-West Lifeco Inc.’s Limited Recourse Capital Notes

DBRS Limited (DBRS Morningstar) finalized its provisional rating of A (low) with a Stable trend on Great-West Lifeco Inc.’s (Great-West or the Company) Limited Recourse Capital Notes Series 1 (Subordinated Indebtedness). DBRS Morningstar assigned the rating equal to the Company’s Issuer Rating of A (high) less two rating notches, which is consistent with DBRS Morningstar’s notching approach for debt instruments issued by insurance holding companies. This is two notches below the rating of Great-West’s Debentures.

Great-West expects to issue $1.5 billion of the Limited Recourse Capital Notes on August 16, 2021, with a maturity date of December 31, 2081. The Limited Recourse Capital Notes will have an initial five-year fixed rate of 3.60%.

RATING DRIVERS
An upgrade is unlikely in the intermediate term given the increase in financial leverage and integration risk following two large acquisitions. However, over the long term, a material improvement in financial leverage together with the successful integration of recent acquisitions, while maintaining strong earnings and regulatory capital levels, would result in an upgrade.

Conversely, the ratings would be downgraded if the Company experiences further sustained deterioration of its financial leverage, combined with weaker profitability and coverage ratios. Moreover, an adverse event causing regulatory capital to decline substantially or significant operational missteps with recent acquisitions, would result in a downgrade.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

The Grid Summary Grades for Great-West Lifeco Inc. are as follows: Franchise Strength – Very Strong/Strong; Risk Profile – Strong; Earnings Ability – Strong; Liquidity – Very Strong; Capitalization – Strong/Good.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Insurance Companies and Insurance Organizations (July 16, 2021; https://www.dbrsmorningstar.com/research/381667). Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021; https://www.dbrsmorningstar.com/research/373262).

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found on the issuer page at www.dbrsmorningstar.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom, and by DBRS Ratings GmbH for use in the European Union, respectively. The following additional regulatory disclosures apply to endorsed ratings:

Each of the principal methodologies/principal asset class methodologies employed in the analysis addressed one or more particular risk or aspects of the rating and were factored into the rating decision. Specifically, the “Global Methodology for Rating Insurance Companies and Insurance Organizations” (July 16, 2021) was used to evaluate the Issuer, and “DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings” (February 3, 2021) was used to assess ESG factors.

This rating concerns a newly issued financial instrument. This is the first final DBRS Morningstar rating on this financial instrument, and represents the finalization of the provisional rating previously issued on August 4, 2021.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

Lead Analyst: Marcos Alvarez, Senior Vice President, Head of Insurance
Rating Committee Chair: Michael Driscoll, Managing Director, Head of NA FIG
Initial Rating Date: July 19, 1985

For more information on this credit or on this industry, visit www.dbrsmorningstar.com.

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